Business 101 | What is operational excellence & why should I care?
It’s a simple, yet troubling question for any business: Where did all my money go? When it comes to starting, maintaining and growing a business in any industry, the term “operational excellence” should be forefront in your mind. But what does operational excellence, and why on earth should you care about it? All this and more is discussed in this episode of extrakTALKS.
If you’ve started a CBD extraction business and are wondering where the $#@! your money has gone, it may be wise to take a look around you. Unsold inventory and unprocessed materials is cash sitting on the shelves and letting more unprocessed or unsold goods and materials build up will only drive the problem further. This is where operational excellence is a practice worth implementing. Operational excellence tools allow you to apply manufacturing science to your manufacturing operation, and systematically, over time, reduce the amount of inventory that you have in your facility. This will add major dollars to your bottom line, it’ll improve your cash flow, and also improve your cash conversion cycle. Well run organizations for many years have been using operational excellence tools to manage their businesses and the cash conversion cycle.
In this episode of extrakTALKS, Dr. Jon and Randall Thompson dive into the details of operational excellence and how you can implement it in your CBD extraction business. By practicing the methods discussed in this episode, you can ensure a profitable business venture in the hemp and CBD industry.
LISTEN to this episode:
1:55 – Weekly giveaway
3:26 – Lab coat?
4:23 – Operational excellence
8:15 – Anecdote
8:25 – kaizen event
9:24 – Lean supply chain
10:44 – Two processes
10:57 – Kan-bans
11:49 – Operational excellence conclusion
13:04 – Best books
15:21 – Lean design and learning
15:38 – Series of conversion
16:12 – Value – added vs. non-value-added
20:08 – Cycle-time
21:15 – Product introduction/process improvement/operation improvements difference summary
23:31 – Value stream mapping
25:11 – A split
29:45 – Best way to implement operational excellence
31:45 – Visible Killer
32:59 – Small business owner
34:38 – Business side of things
36:02 – Don’t wait for perfect
36:46 – Good to great by Jim Collins
42:15 – Top concern
42:40 – Mastering the Rockefeller habits by Vern Harnish
49:53 – You need the science of sales
Welcome to extract talks with Dr. Jon podcast. Dr. Jon is CEO and president of extract lab and united science and industry leader in hemp, cannabis and the extraction industry. Listen closely as Dr. Jon talks about his experiences, CBD extraction methodology and the ins and outs of owning your own business. Dr. Jon teaches you healthy business practices, how to increase your profits and steps to take your CBD company to a whole new level. Let’s dive in.
Randall Thompson 00:34
Hey, welcome. I’m glad you’re here. Hey, if this is your first, your first visit, I appreciate you being here. Thank you for being here. We do have weekly giveaway. So make sure you tag your friends. There’s some housekeeping that we have. There’s some people had issues with their internet because everybody’s at home working. What I’d like to do is make sure that you have the ability to reconnect, there’s a big red reconnect button at the top of your screen. If you if you get um, frozen or whatever, just click the reconnect button, it’ll immediately take it, it’s not gonna take you out and come back and it’s going to reconnect. Okay, so go ahead and do that. The other thing that I want to make sure is that you know that we have weekly winners last week’s winner on LinkedIn, Mark Gillker, congratulations. Congratulations, Mark. On Facebook, John Dion. Congratulations. Twitter, Kimberly Leisure. this year must be French. Yeah, I like it. Way to go, Kimberly. Okay, so this week’s winners will be announced on next week’s show. So go tag your friends go on. We are on instagram.com at extract with a K underscore lab and you’ll see those on the screen later on Twitter, Facebook extract lab, LinkedIn, and YouTube. YouTube will help The previous q&a sessions that we’ve done, so go there, look at that. We’ve got our live tour on that we’ve got the whole Prezi presentation, which is CBD, one on one everything. It’s it’s, it’s hot. So go there. And if you would subscribe to YouTube that would help us a lot. So please, that would be really good. Thank you. Let’s see what else today we’re gonna be talking about operational excellence.
Dr. Jon 02:24
Yes. Okay, my favorite topics
Randall Thompson 02:26
kind of unlike that first little intro when I had to mute and do some other things. So he must be more operational excellent than I am. Right. Hey, I don’t Okay, so I’m going to start out with a quick question before we jump into operational excellence. One of the one of the questions that came up is Dr. Jon, why don’t you wear a lab coat?
Dr. Jon 02:49
And I work well, because I’m not a faker scientist. I mean, essentially, if you’re on YouTube and you have to wear a lab coat, you know that’s you’re kind of trying to it’s like compensating for not being a scientist. Oh, Yeah, so I you know, I have my Dickies here. I got my T shirt on and we’re wearing the brand colors. That’s what I’m all about, you know, I don’t have to, you know, try to
Randall Thompson 03:11
you don’t need that.
Dr. Jon 03:12
Yeah, I don’t need to fake it.
Randall Thompson 03:13
And I have to say, I have to say you’re a brilliant guy. I mean, yes, we’re related. I’m I’m we’re cousins. By the way some people think we’re brothers. We’re not we’re actually first cousins. I am the much older better looking cousin.
Dr. Jon 03:29
Randall Thompson 03:30
Yeah, I know. Thank you for not commenting because that’s okay. So anyway, good answer. Okay. So operational excellence. Sorry, getting back to the word of the day. Operational Excellence. Why don’t you let us know what is what that’s about? Tell us what does that mean? And sure, why are we talking about it?
Dr. Jon 03:46
Okay. Yeah, great. Okay, guys, this is this is really simple. It’s a key question. Where’d all my money go? Anybody who started a business you have to manage your cash, right? If you have inventory, there’s where all your cash Sitting there, it’s either sitting in in process goods, or what they call whip, or it’s sitting on the shelf has finished goods, or it’s sitting it as raw biomass that hasn’t been processed yet. So that that’s where all your money is, or could be, and it’s not in the bank, it’s actually sitting in your facility unprocessed, or in process or as finished goods. So what operational excellence tools allow you to do is to apply manufacturing science to your manufacturing operation, and systematically and over time, reduce the amount of inventory that you have in your facility. And I can tell you, this will add major dollars to your bottom line, it’ll improve your cash flow, basically, it also improved the cash conversion cycle, if you apply these techniques also to for example, you know, your supply chain, you know, these are some of the things that we do Randy with our customers, if if they buy by our operations excellence package or, you know, things like that we will help them value stream out their process, we’ll help them understand, for example, what their cycle times are, what their tack time is where to really schedule production, for example, you want to have production scheduled at a point where you’re where you have things like pull systems set up. So we’re going to kind of talk about that kind of unpack it. But it’s all about the money, Show me the money, where’s all the money? Well just go walk through someone’s organization, like we can’t figure out, you know, where everything’s going. It is it is your inventory. Now, I’ll tell you a second reason why this really matters. And that’s, that’s at the end of the year. When you have a million dollars or half a million dollars, even 100 grand sitting in inventory and your shelves, that is an expense that you really aren’t able to, it’s not going to come off of your balance sheet. It’s not on your income statement. So that’s a big deal. Oh yeah, big time. Big deal because you’re getting taxed on profit, your your bottom line, that’s where you’re getting, you’re paying taxes. But all your money’s over on your balance sheet in inventory is a big problem.
Randall Thompson 06:10
It is a big problem.
Dr. Jon 06:11
Yeah. And so well run organizations, you know, going way, way back a long, long time have been have been using operational excellence tools to manage their businesses and the cash conversion cycle. And I’ll tell you, just to give you an idea of what some of those tools are, you have value stream mapping is a huge tool. I’m a big proponent of that I’ve seen it really work in some of the manufacturing operations I’ve been involved with. It’s amazing, okay, there’s this book, Learning To See, and we’ll put that in the in the meeting notes underneath the underneath the YouTube video, Learning To See is it’s a book that it’s a very simple kind of cartoonish, almost book that but it’s very powerful because it really has all of those concepts that are really important for First of all, creating your own value stream map and then What does that mean in your operation? So we typically I’ve learned from that learning to see book and I give you an anecdote a little bit. We had one company that I was involved with very early on in my career, we had, we did a Kaizen event, which was basically it’s a, you take one process, and you pound all the inventory out of it, and you put it into a single piece flow versus set of batch flows. Okay. It was unbelievable what you could do. I know basically, all the inventory went away a very small amount, there was very small amounts of inventory in the cell. I mean, before we had batch one batch to batch three, inventory one, inventory, cash to inventory, cash three, money, one, money, two, money three, just by taking out all those inventory caches, making it a single piece flow. We we basically took the cycle time down from the very beginning to the end, it was you know, I don’t remember the exact numbers
Randall Thompson 07:59
but it’s way more efficient, also
Dr. Jon 08:00
way more efficient, way more efficient. So, that’s called single point Kaizen and you can also do like flow Kaizen, and we’ll talk more about these and love it together. And then there’s also the lean supply chain, you know, a lot of people, you know, farmers, for example, they want to get paid on their materials like immediately, okay, so they say, Okay, I want to sell my whole crop and you’re going to start at your warehouse, okay, well, at the end of the day that’s costing you a lot of money because it’s just sitting there while while you’re processing. So, what’s a better situation is if you say to your supplier, hey, look, what I need from you is, I will pay you if you give me weekly shipments, I will break it up, I’ll pay your price or whatever that you have. But and instead of buying a million pounds, I’ll buy 10 shipments of 100,000 pounds or 100,000 pounds, you know, 10 shipments a 10,000 pounds. That way you have you’re reducing the amount of inventory in your process. And you’re also reducing the amount of money that you have, and you’re improving the cash flow right off the bat. So those are some of the things that we are basically open for topic here. Yeah, so that’s kind of an overview.
Randall Thompson 09:12
No, I love that. And the whole Kaizen approach and you know, being lean is Khan bonds. Well,
Dr. Jon 09:18
yeah, yeah. Well Khan bond is used as a as another tool in your processing facility. So, for example, if you have two processes that you can’t really put together, yeah, we basically, you know, you have to put it’s kind of a FIFO lane in there. And that’s what they call first in first out exactly. And then a lot of times, like finished goods inventories will use Khan bonds and that that basically is, okay, I have a finished good, I’m putting it on the shelf, and then the customer pulls one off, and that tells me Hey, it’s time for me to make another one. So that’s basically a shelf. Okay. All right, excellent. I love this whole idea of operational excellence and that we that from an operating perspective, and You know, we’ve got a lot of questions. I can’t see them right now, because the screen up here is just a static screen. So we’re going to get those questions. I know that they’re coming in because I see him on a different screen here, but I don’t know where we’re at. So sorry, guys, if I’m not hitting your questions right away, we are also going to be doing, a talking about revenue. A lot of you are talking about revenue as it as it applies to operational excellence. Where are we? What do we need to do? How do we grow revenue? And what we’re talking about with operational excellence is how do we run our organization cost effectively and more efficiently, more effectively? How do we get that out? So if you have questions about how you’re running your organization, or questions about how you’re operating, that would be great. If you have questions about what you want to see from a revenue perspective, or how you’re operating, your cost reduction, your revenue increases. Throw those up, we’d love to see them. We need to see those questions. So uh, like that, as we’re Going through a couple more small housekeeping if I may, as we’re talking about operational excellence and looking for the questions. So, that’s the other thing that I’m waiting on. Okay, so just so you know, next week we’re going to be talking about your hemp processing facility. Right? Right. That’s what we’re doing. Okay, so we’re talking a little bit about operational excellence today, which can be applied to just about anything. That’s what we need. And then we can you know, so if you have questions coming in, in social, any place where you are, please send in your questions through Instagram, LinkedIn, YouTube, Facebook, any place that you are, let’s get those done. Love it. So we’d like to do that. Send out, send those in. I like it. Okay, so going back to operational excellence. Right. All right. I’m a big fan. You’re a big fan and I love the idea. I haven’t heard of Learning To See. I called it up while you were talking. I called it up on Amazon to see where that was. And it’s cool. It’s a spiral bound book, which are usually the best, which means it’s a workbook. It is one of the best books I ever bought was it as a whole series of letters and the name of this and I think I got it probably 30 years ago was called, Why SOBs Succeed and Nice Guys Fail in Small Business. That was, that was the title. Oh, but it was an excellent book. And it was spiral bound. And it did very well. I think it’s out of print right now. But it’s it was a cool book. Anyway, Learning to See, I’m anxious to look at that. Lean supply chain cool stuff. Who are you? Who, who? Who out there? Who do you? Who do you build for? Who do you process for? Who do you grow for? Who is it that in your mind when you’re running your business, right? Because as you’re getting on Operational Excellence you have to have in your mind where you’re headed, right? What are you doing? And why are you doing it? And who are you doing it for? Or if you’re doing something just to line your pockets, and you’re opportunistic about that, there are those elements that do it. But that’s not sustainable. Right? That’s not sustainable. I mean, you love this business. I do. And I mean, it’s obvious the way we are set up, and the way we’ve grown and the what you’ve put into this, your blood, sweat and tears is amazing. And it comes out the other end, and that’s why people are always coming to us for processing, tolling, equipment. We’ve got a lot of really good equipment, right. And we’re changing. I mean, I just found out this week some of the things that are on the drawing board, I’m going Holy cow. It’s, it’s pretty cool.
Randall Thompson 13:45
It’s the industry change it Yeah, it is, and it’s more efficient. So what I like about operational excellence and the whole thing that you’re talking about with the lean design and Learning to See is that every piece of equipment you’re designing is geared to string together or immediately scale?
Dr. Jon 14:04
Yeah, let me let me kind of fill that in. I mean, when you process for hemp, or you’re processing for cannabis, you’re going through a series of conversions you’re converting the biomass into, you’re upgrading it into oils, whether that’s winterized oil, crude oil, distillate oil, and then you’re converting that into a formulation. And then from the formulation, you’re converting it into pens or vapor pens, for example, or you’re converting into tinctures or whatever. So it’s a value stream as you go along. There are value added processes within that value stream and then there are not so value added to actually they’re called non value added processes. Like for example, I have to stop and do maintenance on my machine. So everything shut down and I have to do my maintenance on that machine. So that’s a non value added process of value added process would be when I’m actually doing the conversions converting so yeah. grinding up the biomass into smaller particle size, right? That’s an actual value added time. What you want to do is if you want to know what your cycle time is, you want to add up all your non value added time plus your value at a time. But what you really want to do is eliminate the non value added time. And in order to do that, you got to stop what you’re doing. Go out to the process, watch the operator, see what they’re doing. Write down all the steps that they’re doing step one, here’s what I’m doing step two, here’s how I’m doing step three here’s I’m doing Step four, okay? Sure. And then, and then you time it. And you take step one, you time one, time two, time three, you time four. Okay, well, what are you doing now? Oh, well, I i am i’m i’m What? What are you doing behind the grinder? Oh, I’m, there’s something I’m wiggling back. So what are you doing back there? Oh, well, I’m changing the filter. Oh, why do you need to change that filter? Oh, because it plugs up. Why does it plug up? Well, because Because we’re getting too much sticks from our supplier and the supplier and it producing powder, and it’s not plugging up really. Okay, so do we have a specification on that, right? Oh, no, we don’t have a specification or we do or and it’s accepted Anyway, you know, things like that. So when you actually go down to the process, and you look at each process in its own as its own little microcosm, you’re really able to understand exactly what’s happening in there. And once you do that, you’ll be able to see Oh, well, you know, they’re the operator is trying to fix their machine. And that’s why it’s a cycle time. That’s why there’s a bunch of inventory build up on the front end on it, you know, some things like that. Is
Randall Thompson 16:39
that the same process that you use when we’re talking about terpenes? For example? Yeah, we were finding that we weren’t getting enough terpenes out further down the line, right. And now you’re taking them out predominantly at decarb, right. Okay. Is that the same kind of thing that you did? Were you
Dr. Jon 16:56
Well, that was kind of more of Okay, look. We wanted to preserve all the terpenes for downstream, and rather than, you know, fight the argument of whether or not they were being degraded during the process. It’s just an very easy and convenient way to take the terpenes out ahead of time. But
Randall Thompson 17:14
that’s all. Okay. So that’s more of that
Dr. Jon 17:16
was just a part of a process that we put in place, and then is that wow, these are really great. terpenes You know, you’re never going to get those type of terpenes out of a lot of any other process.
Randall Thompson 17:25
Oh, so that was just expediency of having additional elements. Yes. So from an operational excellence, I was going through and I saw a new feature on the E 180. Right, which is they can, yeah, you plug it in and you push it
Dr. Jon 17:41
right. Okay. So that’s, that would be an example. I don’t know what the feature is called. Oh, okay. It’s just an automatic automatic injector, I guess. So it automatically removes the biomass material from the cylinder. So when we looked at our cycle time on that particular note, it’d be a good example of a process improvement not necessarily operational excellence tool, but what we did was we said, okay, well here, we looked at all the cycle time, okay, you fill it, you run the material, and then you have to get the machine ready for the next go round. And we want one operator to run, you know, like five or six machines. So, you know, he’s he’s working, he’s doing that same exact process again and again and again, we were just trying to figure out okay, well, how can we eliminate one of the major areas of cycle time so that one operator could be twice as efficient, but we did that just by, you know, taking a look at the machine, you know, putting in some extra plumbing on it, and now it just ejects to take the raffinate out of the machine after it’s been extracted. So it eliminates the cycle time in the one operator can be, you know, at least 40% more efficient. So that’s what really great. But that’s more of a process of process improvement.
Randall Thompson 17:45
Okay, so I know we’ve talked about product introduction Yeah, we’ve talked about process improvement. We talked about operational improvements or operational excellence, right? Can you do just a summary of the differences? I mean, we’ve given some examples of those. Because we’re talking a lot about operational excellence. Can you just kind of give a quick summary of an another example of an operational point? I know you talked about the filter, okay. Yeah.
Dr. Jon 19:25
Okay. So, let’s just think about the differences in as you go through the process. Okay. As you started, you started from biomass, you’re converting over to grinding, okay. And you’re converting that at a value added process, which is grinding, okay. What if your grinder for example, is very highly? It’s very efficient, you would basically grind everything and you’d have an operator there to be grinding everything, then there’d be a big bottleneck after grinding because either extraction or decarboxylation is slower, right? So it doesn’t make sense. By that huge grinder, that’s going to be super fast and spend all that money to have a super fast, super, you know, conveyor grinder and everything when the other processes downstream are not even close to matching it. Okay, so what is important is that in a process that you’re sizing the equipment so that you’re reducing or minimizing the amount of inventory in between each process. Okay, and better yet, even eliminating the inventory all together between each process.
Randall Thompson 20:28
And that’s not just eliminating inventory, but eliminating time time. Yeah, because if you’ve got a bottleneck, the biggest cost is time. A second is all of the inventory that’s sitting there. Right, right. Right. So those two things from a process perspective, are there so you want to properly size and make sure it’s an integrated system? Yes. That will give you that efficiency.
Dr. Jon 20:49
Yes. Okay. Yeah. And so that if you have like, if you have a really fast cycle time, you know, for one particular part of the process, you’re going to have a huge inventory buildup. And so want to do is maybe concatenate processes together so that they have, so that the all the different processes are balanced. Okay? Yep. And of course we help you do that in actually value stream mapping will help you do, they’ll understand, okay, you’ll map out where all the inventory is. It’ll map out what your cycle times are for every one of your processes, like the labor is what the value added labor is, and then it’ll help you see, okay, well, look, here’s my value stream, and I’m going to schedule my, you know, my trigger point at which I start to produce, I’m gonna schedule it at this particular process, because everything after that is just a single piece flow. Sure.
Randall Thompson 21:37
Okay, so I love that. Okay. Yeah. I’m going to pause for a moment. We’ve got another question coming up. And the questions are now starting to roll in. So please, in the chat, you can see where the questions are just popping into question. We’d love to hear from you. We’ve got some questions. Here’s one. They’ve got a split contract. Okay. This is Tyler. Thank you, Tyler. And he’s for winterized. crude, okay, that’s what he’s want. He needs he’s anticipating having to dilute down the crude so that it’s compliant. Okay, yeah, below the below the grade depending on how high that is. Essentially, if they have to do a formulation, so what is the most expedient way to do that? And would you require the grower to purchase the oil of their own choice for that dilution? Okay, because you have to dilute it with an isolate, to get it down below the projected THC levels. That’s what I’m assuming your question. Okay.
Dr. Jon 22:36
I see what his question is. Okay. He’s talking now about a split. Let me explain a little bit about what that is. Okay. A split is a contract between two individuals in that is I have biomass and you have extraction equipment. And what I’d like to do is I’d like to give my valuable biomass to you and you use your valuable equipment processes and procedures to convert that for us. And then we agree that the output is going to be split on some level. Usually, the terms of the contract would involve some sort of an idea as to, you know, what the quality of the material was coming in. Like, for example, say you have 100 pounds and 50% of it sticks, I’m not going to spend my valuable time and money, you know, running sticks and stems for people and then getting a little bit of crude out and, you know, splitting it with the guy. Sure. So usually with a split contract, you’re going to want to have some sort of input specifications of what you what you say what you would accept, okay. But once you have that, you know, we typically only do splits at crude levels. So crude comes out of the machine, we give the customer an idea about what they would expect to get out of that. It’s just an estimate because things can change and there’s variation in that biomass that you just got so I would say that on that particular side, from a contractual standpoint, it’s most valuable and solves the most issues if you split at the either the crude level, or you even split at the biomass level, okay, well, 50% of this is ours, we’re just going to put that in a bag and not even do it. We’ll do yours first. Okay, and then you get everything that’s out of it. So, in terms of dilution, now, you also asked the second question about dilution. Yes. And that’s a question of Okay, if you are working with someone who has a high amount of THC or maybe a compliant amount of THC in their, biomass, but as you extract it, it starts to concentrate. What you’re trying to do then is to ship it to that person and still have the shipping be compliant with the .3% got it. Okay. So, oftentimes, you need to dilute it down. Okay. Usually what you do is you can dilute it down with, you can dilute it down with anything really, I think you can dilute it down with an oil, you probably can dilute it down, we can dilute it down with ethanol, because ethanol can be removed. And if you use ethanol in that case, I would definitely use food grade ethanol, don’t use denatured ethanol, please, you’re just going to be ruining your materials. The second thing you can do, and I don’t know, we were kind of looking at this. I mean, you know, even the solid for example, like a solid that could be removed because you have a volume and you have a you know, it’s .3% by weight. So you have a solid that you can put in there, like marbles or steelies or whatever. That would be something that you could you could also also attempt to try, I think, okay, but I mean, at the end of the day, when you ship it to somebody, it’s still in process, because they’re going to be doing something with it. So at least in the state of Wisconsin, where we are housed if we shipped it out to another processor, that would be considered to be still in process items. And you would ship it with the, with all the paperwork, you would designate it as in process items, because obviously the people who are getting the crude oil in or whatever, they’re going to be further processing it. So that’s what I would recommend.
Randall Thompson 26:20
Excellent. Yeah. Okay. I love that. That is really two questions in one. Yeah, two answers. Good. Love it. Tyler, hope that answered your question. There are a lot of different things that we can do with operations with processes and with how you’re generating your revenue or doing these splits. I mean, there’s a lot of ways to do that and grow your business. Right. Okay. So going back to operational excellence, what are the best Okay, we talked a little bit about the tools and then we went into this, what is the best way to implement that and how does that affect my bottom line?
Dr. Jon 26:55
Okay. So the best way to implement it would be to basically, if you’re the owner of a small company, you need to own it yourself. Yeah. And what that means is that you get your operators together, you get them into a room and you go walk the process, walk the line. And you know, all you got to do is buy the book, read the book, go walk the line, and do exactly what it says. And just go through the exercise, okay? And you’ll see that it’s going to start to produce dividends for you. And it’ll also at the very minimum, it’s going to give you a very good picture as to what’s going on in your operation. A lot of times, you know, small business owners, they get really busy with everything that has to be done, and who has time or operational excellence. I mean, that is a that’s a real deal. Oh, yeah, you bet. But I’ll tell you that the operational excellence side of the equation is really where your profit comes from. I mean it you have your margin, obviously, but all of these different items are eating your margin away. You know, the fact that you have inventory? You know, sorry, strewn about the facility is also a real big issue. And you know, a lot of people go out of business because they can’t afford the inventory that they have in their building. It absolutely is true. And then when you’re on a growth trajectory, that’s it starts to magnify.
Randall Thompson 28:18
Oh, yeah, it’s the visible killer.
Dr. Jon 28:20
Yeah, it’s the visible killer. Like you can grow yourself right out of business easily. I mean, we we almost grew ourselves, right of business if it wasn’t, yeah, we almost did that. That almost happened to us, because of inventory. Because we were, we were scaling up for inventory. We couldn’t wait, you know, for example, 24 weeks for materials to come into our facility. So we were pre ordering, okay, getting all of our inventory, building it all up, our order started coming in, and you have to have cash available to continue to build that inventory or otherwise, it’s just not feasible. So that’s something that you need to think about. You really need to plan it. I mean, all the bankers said that you can grow your way out of inventory and then grow your way out of you can just grow yourself out of business. Yeah, because it’s almost like impossible to believe
Randall Thompson 29:05
because because what happens is, it’s like getting too much water or too much oxygen. You’re, you’re done. Okay? Because there’s too much in there. And when you’re working that operational and getting efficient, all of your capital now is in that inventory. And you can’t run your business. That’s the problem, right? And that’s what will strangle your business. So you have to mean is that all the way? And I like the way that you said, you need to walk your business, you need to own it, you need to really look at it from the beginning to the end, right? And where are you? Right? So that’s
Dr. Jon 29:42
Yeah, so if you’re a small business owner, what I suggest is get your team together, get them get you all into one room. You know, like this, you Learn to See book, it’s just an example. There are a lot of examples on the web, but we purchased all those, I mean, I must have a dozen copies of those. What Just get them out and go ahead, get into a room and then just pick one process. I’m going to use one processor, do one process a week or 5-10 weeks and you’ll have it, you’ll have a very good idea about what’s going on in your business. So start with receiving whatever the receiving process, that’s where all kinds of all kinds of sins are committed in a seething process and
Randall Thompson 30:22
what I hear Okay, so I’m going to translate this in my mind when we’re talking about operational excellence. The big thing that we need to do is really think about what are the systems that are there? who’s doing them? And are they working? And then how do we make them better? Yeah, right. Yeah, that’s all we’re talking about. Yeah. Simple.
Dr. Jon 30:42
Yeah. Okay. So with an eye towards inventory reduction
Randall Thompson 30:47
with an eye toward inventory reduction. Okay. So, because that streamlines it that takes that cash out of from the floor, sitting everywhere, and you just do that night. So a system and a process. flow? is part of operational excellence.
Dr. Jon 31:04
Yes, yes, yes. Okay.
Randall Thompson 31:06
Right. Good. I like that. I know that there’s a lot of things that we do from the on the business side, we’re talking about operations, but there’s also the whole business side of things. And that is, how are you managing your business? And what are the objectives and key results that you’re monitoring? What are the KPIs? What are the key performance indicators that you have? And you can do those things in every segment of the operation? Right, right. Right. Okay. Absolutely. So what you’re saying is look at that, and then walk through it start documenting, right? So once you document that, that’s your system,
Dr. Jon 31:43
Right. And so let’s talk about some of those KPIs. Right. You might have for example, KPI of inventory turns Hmm, that that would be something you might really look at. It may not be perfect for your business unless you have good financials with balance sheet. Being, you know, printed out and closed every month. So maybe a different metric might be just overall cycle time. If you continuously measure cycle time, that would be something that would be good. And you can do that with a piece of paper, just have all of your operators write those down. It’s less attractive than having a full system that’s up and running that will keep your KPIs but I would suggest don’t wait for the perfect because the perfect is the enemy of the good. Oh, yeah, I’ll take a paper system, even if it’s not the best starting out, right? There are automated systems, obviously. But start with what you have. Don’t let anything stop you from driving excellence because it’s about the value of your business too, because you’re basically helping the cash generation take place that’s going to your bottom line. And it’s helping you maintain in freeing up cash for growth,
Randall Thompson 32:50
and it’s not as much as driving toward full on excellence. It’s more just getting better.
Dr. Jon 32:57
Yes, right. Continuous improvement.
Randall Thompson 32:59
We’ve all heard it before. Good to Great Jim Collins. Great, good book. I love it. Great book. The question that is in there is what is your big hairy audacious goal, right, the
Dr. Jon 33:09
Randall Thompson 33:13
And you can have that in your operational excellence platform and that BHAG is reducing your inventory to X percent or x level, right or eliminating it in the flow, right? When you’re walking around, you see big piles of inventory, how do we get that down to 10% of that number, right. or start out with 50% and then move for? So I like your idea of don’t go for perfection because perfection is unattainable. Yeah, and if it’s unattainable, why try? Yeah, that’s what we do in our mind. Okay? You want to strive for excellence. You’re never gonna hit perfection. You want to get from good to great, but you can start with good enough, right? You can start with good enough. Okay, most welcome. Who said this? I think it was. Ben Franklin said this. No, not Ben Franklin. type in the chat if you know, oh, by the way, there’s a poll, please answer it. Are you using KPIs or OKRS? That would be great, if you would 65% of success is just showing up. Yeah, it’s probably it’s just showing up.
Dr. Jon 34:18
Yeah, calling the meeting every week saying, Okay, let’s talk about this particular process.
Randall Thompson 34:22
Or even more than that, actually doing it. Right. Doing something not just having a meeting.
Dr. Jon 34:27
Oh, yeah. That’s, that’s true. Yeah, get up out of the chairs. Okay, start get up out of the chairs. We’re going to go out back and we’re going to look at the process.
Randall Thompson 34:34
I’m going to call 10 more customers today, I’m going to go look at that inventory and just figure out why it’s sitting there. What do I do to eliminate that process? Yeah. So showing up just starting writing it down? What are your processes and systems?
Dr. Jon 34:47
Perfect. You wouldn’t believe the things that I found by just getting up out of my chair and going and seeing what it is that was going on. There’s all kinds of funny things. We had one situation with one company, I was Working with they had one of the engineers called me up and said, Hey, I have a problem with this. This tube that you guys have delivered, it looks like someone bitted it off. That’s what he said, bitted it off. Like what I like, What are you talking about? Bitted it off? I don’t even know what you’re talking about. Yeah. And he said, Can you explain that? Yeah. He said, Well, it looks like somebody bitted it off. And wait, I gotta go see this. So literally, I went down and I said, Can you show me how you make this? And I just every step of the way and then sure enough, sure enough, out with this little nail clippers. In this was the widget manufacturing. nail clippers, clipping off the tube. And that was causing the tube to crimp It would block all the flow. Like somebody bitted it off. It didn’t look like somebody’s biting it off. I’m like, Look, what I found
Randall Thompson 35:56
would have been funnier if he was at you actually caught him doing that. It’s that simple.
Dr. Jon 35:59
Yeah. That would have been better. Did you take this that? That would have been good. But what you don’t the way you know about those things in your operation is is you go and see and can’t really leave it up to
Randall Thompson 36:11
no, you’ve got to do it in Tom Peters way back when in the dark ages talking about In Search of Excellence, right. It was management by walking around. Yeah, right. Yeah. And BWA management by walking around so you got to go out there and walk around and find the people are biting shit off. Sorry.
Dr. Jon 36:31
Kinda like that, I guess, are using a nail clippers. But then the other thing would be just you just go there. I went through one of our processes recently, and we kind of just looked at Okay, here’s, here’s where everything well, the tools that we needed to get the job done, we’re in a different room, for example, oh, you can have a dedicated tool. It’s gotta be in the room, and you got to have a workstation for what you’re doing. Right. So and then we had to go out and get the particular material that was using MCT oil. Oh, that’s in the other place over here. Okay. And well, why can’t it be right here? Well, we check it out of inventory. That’s perfect. That’s really great. That’s awesome.
Randall Thompson 37:08
That is awesome.
Dr. Jon 37:08
Yeah. But at the same time when the Where’s your work order, for example, for this particular stuff, and you know, sometimes there was work being done with no work order, sometimes there was work being done that was over and above the work ordeer, you know, so those are the types of things that you find out why that is the case. And there was a reasonable explanation in every case, and it all went back to what’s my process? Yeah. What, yeah, what’s my process? Why, why am I doing this?
Randall Thompson 37:34
Right? Why, where am I headed? I start here, I go here. Why does this happen? Right to interrupt the flow? Right, right. Right. Okay. I think that that’s good. So we’ve talked a lot about operational excellence, Process Excellence, revenue. We’ve talked a lot about different things. So what I’d like to know is what is your top concern? Right now, I’d like you to know is your top concern generating revenue? Is it reducing cost or is it operations, they’re all vital to your organization. I also wanted to talk about, we’re throwing a lot of books around, we’re gonna have to Yeah, we have our library together. One of the books that I like a lot is Mastering the Rockefeller Habits. Vern harnish did a great job with this. And he talks about the fact that the three basic decisions in an executive team has is do we have the right people? Are we doing the right things? And are we doing those things? Right. Okay. So you’re always asking the question, do you have the right people? Yeah. And you want them making good decisions or being present? right. Right. You want them there? Right. Always. Are we doing the right things? Okay. That’s what we’re talking about with operations and procedures and everything systems, right? Yes. Right. Okay. And then are we doing those things right?
Dr. Jon 38:47
That’s, you know, go see,
Randall Thompson 38:48
go see, go see, get off your ass, right. Get out in the plant, right. Figure out what’s working and what isn’t right. Write it down. Right. Okay. So, listen to Dr. Jon.
Dr. Jon 38:58
The other thing That you’re really, for people who are just getting into the, just okay, I’m an investor now and I want to invest in a particular, you know, operation. Okay, what are the things that really matter to me? Okay? If I, I have done that myself and spent a lot of money on operations. So, but here’s the thing that I typically look at, okay, what is the lowest cost operation that I could put together? You know, sure. What are the key cost drivers that are hitting my income statement and hitting basically above the lines with the call that above gross margins? So your fixed costs, your materials and labor, what are the things that are really driving those costs so that I’m generating the maximum gross margin? Sure possible. Okay. So I always want to as a someone who’s investing invest in the lowest cost, manufacturing methods and equipment and facilities I can, because that will produce a greater gross margin, which will produce a greater bottom line, which will produce a greater fee free cash flow, which will increase my net present value. And we had discussed this last week a little bit, but it’s a really important thing, because it drives the value of your business right from the beginning. No question. So for those people who are looking from an investment standpoint, and they want to say, Okay, well, I want to invest in one of these markets that are supposed to be growing by you know, 67% compound annual growth rate over the next three years, okay? And I want my money to work for me. And at the end of that I want to be able to exit or I want to be able to, I want to be able to really improve the situation. I want my money to grow and work for me right here. I mean, the things that you should be asking is what is the lowest cost method of operation that I can put in place because you know, as prices go down and things like that you want to be able to compete and maintain your gross margin.
Randall Thompson 40:59
Absolutely. And that’s that’s cost control that system control that’s getting control of your business.
Dr. Jon 41:04
Yep. And starting out. Right, exactly.
Randall Thompson 41:07
And starting out, right. Okay. So you want to make sure that you have a system that’s going to scale properly. And that will eliminate ahead of the time, those pockets of inventory. Right, right that you were talking.
Dr. Jon 41:18
Yes. Yes. So if you set up your manufacturing facility, to pre pre assess and to pre worry, all those points of inventory by you know, getting the right answer, yeah. Then you’re going to be making more money.
Randall Thompson 41:38
Well, that wringing your hands about worrying the things out is interesting.
Dr. Jon 41:43
I mean, you really need to think this through from the standpoint of an investor to so you should be able to know, for example, you know, what your costs are costs to produce and if you have people that are you’re working with that know how to operate this They’re going to be driving more cash flow. Absolutely. They’re going to be producing a greater net present value, no question about it, no question. And your company will go for more money when it gets consolidated or whatever, because your cash flow generation is three, four times that of a peer competitor.
Randall Thompson 42:16
Well, and that’s a good point. I’m going to jump just going to take a left turn here. There were a couple of questions that had come up about the industry right now. There are a couple of hiccups in some of the big companies out there right now. And my question to you, Dr. Jon, is what? When some of these businesses are going out of business or filing bankruptcy or doing some things? Is that because they’re not driving enough revenue? Is that because they didn’t have good operational excellence? Is that because they couldn’t get the proper product in WIP? What? Why do you think that is? I mean, I know you’re a research guy. I know that’s a team. It’s tough. It’s a tough question, but and we’re not them. We’re not there. So you can do it. But I can tell you that when I was in my early 20s, which was back in the Stone Age, I think we, I was making revenue like crazy. What I didn’t realize at the time was that I was losing 10 cents for every dollar I made. And I was losing money fast. The faster I made revenue, the more money I was losing. Yeah, I mean, that was stupid. Okay, yeah. So you look at those. And then, you know, I finally went back and got my business degree and studied in the MBA and, you know, learned what I didn’t know. And that was kind of fun. But what I’m looking at is these large organizations are sitting out there, and they’re big things. So my question to you, Jon, is, what do you think was the driving factor in this market? That’s putting you on the spot?
Dr. Jon 43:53
Well, can you say all the above? Yeah, yeah. I mean, I think it’s almost all the above. I mean, you have to have customers that are driving your revenue so the demand is definitely there for processing for hemp processing the demand is definitely there yeah I guess that you know a lot of people maybe they’ll start out. I had a kind of an interaction maybe about a month ago with with someone new you know, I asked him Well, well I got no I got the building and I’m producing all this oil and everything and now what do I do with it? And I’m like, Well, how many salespeople do you have? Well, I don’t have any salespeople. Well, okay, you got scientists, okay. You got your building, you got all your scientific procedures, your GMP and everything is wonderful, but you don’t have a salesperson you need the science of sales. Okay, so that if you don’t have that, that’s the first thing you need to get. You need to get a good sales guy and I’m talking you know, if you’re a small business, you don’t want a corporate guy to be working for you. Not anything against corporate guys, but a corporate sales guys, we don’t want meeting attenders. We don’t want to have people who are order takers, you got to have hunter gatherers, you got to have people who go out and kill. In other words, people who go out and you know, they’re engaging the customer, rather than sitting back and answering the phone and saying, I mean, your business will go out of business with those.
Randall Thompson 45:16
And it’s engaging. I agree with you. I mean, it’s the same. There’s no difference between operational excellence and selling excellence. Oh, yeah, that’s a part of it. That’s true. And there’s there’s a really good book you said, the science of selling and there is a great book called The Science of Selling by David Holyfield. Okay. And it’s really good. It goes through all those processes, okay. And the systems of selling and how you go and how do you find the right customers that are the perfect customers for you? That’s what you want? Okay. So, I know earlier, we talked a little bit about, you know, that poll that had his revenue operations and what was the third one, I don’t even remember reducing costs. Okay, so a third of you talked about operations. And two thirds of you said generating revenue. Okay, so we want to spend some time on generating revenue. We can’t do that today because we’re running out of time. Our I mean, this went fast. Yeah. So, but I think we were going to be talking about hemp processing facility next week. Do you want to do you want to bump that and talk about generating revenue next week?
Dr. Jon 46:21
Well, it doesn’t matter to me. I mean, we can we have a whole list of topics here. By the way, if you guys have any topics that you’d like us to be talking about, and answering questions on, be happy to do that. We have basically an hour dedicated each week just to sit around and talk about issues that are coming up in your business. And we will select User based topics if you have them, give them our way. And we’ll try to try to do them justice. If we know something about them. We’ll talk about it.
Randall Thompson 46:52
Absolutely. absolutely. And don’t forget to tag us, follow us YouTube, LinkedIn, Twitter, Instagram, please Get us. Okay. tag us. Watch us. Subscribe as you can. We’ve got great people doing this. So thank you for being here. Oh, and there’s the giveaway. Don’t forget we had our winners this week. Go in tag your friends. We’ve got winners. We got giveaways. They’re really cool. Hey, Jared, what are what are we giving away? Yeah, tote bags and we’re gonna be giving away a hoodie. And it’s got the extract lab stuff on it. It’s really cool tote bags and hoodies and we got hats. We got all kinds of stuff. So it’s really cool. It’s it’s great swag. So get in there. Apply tag get there. Jared does a great job. James. We got a great team. Yeah, we do. It’s it’s really fun. Okay, so anything housekeeping? Oh, click on the links in the notes section. We’ve got links all over to white papers, operational excellence, the links to the books that we’ve talked about, right. We’ve got all of that. And oh, Ryan good week, sales strategy for hemp oil and hemp products. That’s actually a great topic. I’m Love that.
Dr. Jon 48:00
I’ll do. We did. We did have one. We did the top five success factor for CBD manufacturers. We have those. We should probably revisit that. We did a podcast on that, like, I don’t know, a couple months ago. So I think that’s something we can do.
Randall Thompson 48:14
Okay. And how did you find quality customers? Bob? Great question. Yeah. Are these the customers we want? customers to sell to our whole everything? Boom. Done. Just beat the bush’s question. Yes. beat a lot of bush’s go out there. There are people you want to get that? Yeah, go ahead.
Dr. Jon 48:32
Oh, well, you’re gonna say something about that. I just saying, you know, if you hire the right salespeople, they will find business. They bet they Yeah, that’s it. I mean, if you’re not if you don’t have sales coming in, you get the wrong salespeople. And I got I had I had this guy. He was Mike McDonald. He told me the perfect thing. He said, Jon, if you got the wrong salespeople, just don’t wait. Yep. going get them. Yeah, there’s gonna be people who are
Randall Thompson 49:00
I agree don’t hireorder takers. You don’t want order takers. You want people who are listening, networking engaging, asking lots and lots of questions. And unfortunately those are the guys that are pain in your ass because they don’t leave you alone, right? How do I make this deal happen. What do we do?
Dr. Jon 49:15
Yeah, no If they’re not driving you crazy, They’re just basically not doing their job.
Randall Thompson 49:21
And that is, that is absolutely the truth. Okay,so we’re gonna we’re gonna talk about that I love the idea of coming back to the other things. We’re just having fun or just having fun. Thank you so much for being here today. I so much appreciate it. I value your time of value you being here. tag your friends come next week. And so next week that we decide we’re going to do revenue. Yeah, let’s do revenue. We’re going to do revenue next week. We’re going to blow it up to blow it up. Bring your friends we’re going to talk about how to generate the right revenue for your business. Yep, we’re gonna knock it out of the park. Okay, let’s do it. No Holds Barred man.
Dr. Jon 49:55
Oh, all right. Thanks. Thanks.
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